CORRECTED-TREASURIES-Moderate retracement in yields after two weeks of flattening

5 Min Read

(Corrects headline and first paragraph to reflect curve had
been flattening, not steepening)
By Kate Duguid
NEW YORK, April 19 (Reuters) - Yields on longer-dated
maturities climbed modestly higher on Thursday after two weeks
of rising less than shorter-dated bonds, retracing some of the
yield curve's flattening.
The previous nine continuous trading days of flattening
follow a trend that began in mid-February. That trade was "well
into oversold territory," suggesting the move is technical and
that there is still room for the curve to steepen, said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York.
"We're at a period of consolidation as the market
establishes new volume levels in this zone," he said.
There is little significant data being released this week,
but if the steepening move is technical, it would likely reverse
once the market receives more fundamental inputs. Those include
next week's Treasury auctions and the advance estimate of
first-quarter gross domestic product on April 27.
Not all analysts agreed. The overnight rise in the yield on
the benchmark government note is evidence of "continued signs of
positive economic growth," said Jim Barnes, director of fixed
income for Bryn Mawr Trust in Devon, Pennsylvania.
Strong economic fundamentals could be behind Thursday's 3.8
basis point increase in the spread between two- and 10-year
yields and the 2.5 basis point increase in the
five- and 30-year spread.
The 10-year Treasury yield was up 4.7 basis
points from its last close, to 2.914 percent.
"I don't think you're going to see a flattening this year,"
said Barnes. "Economic growth prospects look good and I think
we’ll continue to maintain that same positive but somewhat slow
economic growth profile."
Americans boosted their spending in March, unemployment is
low at 4.1 percent and wages inched higher, according to the
Labor Department's payrolls report released earlier this month.
But inflation has nevertheless remained stubbornly low.
That helps explain why the 10- and 30-year yields, which are
proxies for the market's view on the health of the economy and
future levels of inflation, have been rising more slowly than
two-year yields, which are sensitive to investors'
expectation of interest-rate hikes. A flattening yield curve
suggests the market believes the Fed will continue to raise
rates even if there is skepticism about U.S. growth and
inflation.
"I think (the spread between five- and 30-year yields) will
invert by the end of the year, but not by the end of the month,"
said Lyngen.
He conceded, however, that all could change in a moment.
"We’re always one tweet away from a flight to quality."
April 19 Thursday 10:31AM New York / 1431 GMT
Price
US T BONDS JUN8 143-25/32 -1-5/32
10YR TNotes JUN8 119-228/256 -0-64/25
6
Price Current Net
Yield % Change
(bps)
Three-month bills 1.79 1.823 0.010
Six-month bills 1.9575 2.0044 0.002
Two-year note 99-168/256 2.4316 0.005
Three-year note 99-104/256 2.5828 0.011
Five-year note 98-216/256 2.7515 0.020
Seven-year note 98-132/256 2.862 0.033
10-year note 98-164/256 2.9098 0.043
30-year bond 97-240/256 3.1064 0.060
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 28.50 0.50
spread
U.S. 3-year dollar swap 22.00 0.00
spread
U.S. 5-year dollar swap 11.50 0.00
spread
U.S. 10-year dollar swap 2.00 -0.75
spread
U.S. 30-year dollar swap -14.50 -0.75
spread
(Reporting by Kate Duguid; Editing by Dan Grebler)